Pensions Institute welcomes MPs' report on freedom and choice
Report suggests introduction of a default decumulation pathway
The Pensions Institute at Cass Business School today welcomed the final report by MPs on the Work and Pensions Committee into pensions freedom and choice. The report suggests the introduction of a default decumulation pathway, as recommended in the Institute’s 2016 report ‘Independent Review of Retirement Income’.
Professor David Blake, Director of the Pensions Institute and author of the ‘Independent Review of Retirement Income’ said:
“I am delighted that the final report of the Work and Pensions Committee into pensions freedom and choice has recommended the introduction of a default decumulation pathway. This was first proposed in my ‘Independent Review of Retirement Income’ report published in March 2016.
“There are significant risks involved in the generation of retirement income from pension savings, such as investment risk, inflation risk and longevity risk. Following ‘freedom and choice’, these risks are borne directly by DC scheme members. Unfortunately, many people do not understand these risks, even with improved financial education. Some risks have to be experienced before they can be genuinely understood, by which point it may be too late to reverse the damage caused by poorly informed decisions.
“If a large group of people cannot understand the risks they face, they should not be expected to manage these themselves. Instead, if there are well designed and regulated schemes which use retirement income products that manage these risks in the most efficient and cost-effective way, it might be possible to nudge or default savers towards one of these schemes. Building on the lessons of auto-enrolment, I believe it is possible to design a default decumulation pathway using a simple decision tree.”
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Professor of Finance & Director of Pensions Institute